Apple’s Services Business Is a Shining Light Among Stagnating iPhone And Inconsistent iPad Sales

Apple Inc. (NASDAQ:AAPL) has released their quarterly earnings report for fiscal Q4 2017, and it is mostly good news for the Cupertino tech giant. According to the recent press release, the net revenue of Apple for fiscal Q4 2017, ended on Septemeber 30, rose to $52.6 billion. This represents an increase of 12% YoY, and an increase of 16% over fiscal Q3 2017. The company’s net income amounted to about $10.71 billion, 18.9% higher than last year.

However, upon delving into specific product categories and geographical sales data, the story gets more interesting. As is the norm, Apple’s single best-selling device in fiscal Q4 was the iPhone, with over 46.67 million units sold. This represents a QoQ growth of nearly 14% and YoY growth of 3%. Similarly, revenue from iPhone sales also shot up by 16% QoQ, and by 2% YoY. This demonstrates that Apple has finally recovered from the poor 2016. The sales of Macs also demonstrated a healthy growth rate of 25% QoQ and 10% YoY, with 5.38 million units sold.

However, Apple will find themselves by the performance of the iPad this quarter, as sales took a bit of a nosedive. Last quarter we commented on how Apple had finally managed to arrest the iPad’s gradual decline, but now that proclamation seems to have been a bit premature. Unit sales fell by nearly 10% compared to last quarter but still remained a good 11% higher than Q4 2016. This means that things are not quite as bad for the iPad as they were a year ago.

Once again, the star of Apple’s earnings report was their Services business, which raked in over $8.5 billion this quarter. This represents a growth of 17% over Q3 2017 and 34% over Q4 2016! Apples ‘Other Products’ category, which includes products such as the Apple TV, Apple Watch, Beats products, iPods and accessories also saw healthy growth of 18% QoQ, and 36% YoY.

One important takeaway from this report is the fact that Apple’s iPhone sales have a hit a ceiling, and further growth is becoming glacial. Factoring in the iPad’s inconsistency, and the limited market base for Macs, it is clear that the Services segment is key for Apple’s future. While the ‘Other Products’ category is also performing admirably, it lacks the high-profit margins and huge potential for growth present in the services business.

All in all, fiscal Q4 has been very good for Apple. Nevertheless, Apple is now aiming even higher for the next quarter, with a target of $84 billion – $87 billion in revenue. With the iPhone X now having launched after months of eager hype and anticipation, Apple definitely has a very reasonable chance of attaining their lofty goal.